Savings Accounts

Perhaps the most basic savings tool that everyone should have is a savings account. A savings account is available from any bank, and offers a small amount of interest.

When you put your money into a savings account, you are basically loaning money to the bank. The bank takes your money and uses it to make loans to other people, among other things. In exchange for letting them use your money, they give you interest on your account. You are free to add money or withdraw money from your account at any time.

Pros of savings accounts. Savings accounts are a very safe place to put your money. You are pretty much guaranteed to get your money back, and the money is insured by the FDIC. This means that if the bank goes out of business, you can still get your money back.

Another benefit of savings accounts is their liquidity. In other words, it is very easy to add or withdraw money as the need arises. This makes savings accounts an excellent choice for creating an emergency fund.
Cons of savings accounts. The interest rate on savings accounts is low. Very low. At the time of this writing, most savings accounts are offering around 0.1% interest. If inflation is 2%, and you are only making 0.1% interest, you are actually losing 1.9% per year.

However, a savings account is still better than hiding the money under your mattress. Plus, by storing it in a savings account, your money is insured by the FDIC, which you also don’t get by hiding it around the house. Simply put, a savings account is designed for safety, not for making big bucks.